Can someone help me with the math?

Obama noted the many critics of the package, but he said government leaders have a responsibility to act for future generations. The United States has met every challenge with bold action and big ideas, he said, and "that's what fueled a shared and lasting prosperity."

So the responsibility for future generations is to saddle them with ever increasing debts?

787 billion dollars to "create or save" lets go optimistically 3.5 million jobs. Thats a cost of $225,000 to create or save each one of those jobs..... i'm still thinking we could have done a 300 billion lottery drawing out of all the people who have filed taxes at any time in the last 5 years, and give each "winner" $50,000. That would have given 6,000,000 people a significant change in cashflow, allowing them to start new businesses, buy new homes, etc.

i liked jon stewarts "trickle up" economics. give everyone 10-15k to pay off dept, and the banks will get their money that way. there's no other way to make it fair to everyone who did buy houses in their price range etc.

i liked jon stewarts "trickle up" economics. give everyone 10-15k to pay off dept, and the banks will get their money that way. there's no other way to make it fair to everyone who did buy houses in their price range etc.

Its interesting (so long as it doesn't turn into one of those illuminati theory movies). I'm going to have to grab the whole movie.

The IOUSA movie is no-conspiracy BS; just very well done. Stellar reviews from RT got me to watch it, and I'm glad I did. It's just too bad it was all done before the financial crisis; there's so much it missed (Although it did see it all coming!) http://www.rottentomatoes.com/m/i_o_u_s_a/

yeah, just from that intro clip is enough to tell me i likely agree with most of the concepts. What happens when you over time spend more than you take in? eventually servicing the debt becomes untenable. Thats why china yesterday kinda gave that heavy hand of "you better not let inflation run wild and mess up our investments here in the USA" as honestly that was the best overall idea to fix the current situation - spike inflation to 6-8% year over year for the next 5-6 years. I kind of thought that was what Obama meant when he said he'd take the deficit down to 600 billion a year, just that he'd keep it at 1.7 trillion in 2012 dollars, but it would only be worth 600 billion in 2009 dollars

yeah, just from that intro clip is enough to tell me i likely agree with most of the concepts. What happens when you over time spend more than you take in? eventually servicing the debt becomes untenable. Thats why china yesterday kinda gave that heavy hand of "you better not let inflation run wild and mess up our investments here in the USA" as honestly that was the best overall idea to fix the current situation - spike inflation to 6-8% year over year for the next 5-6 years. I kind of thought that was what Obama meant when he said he'd take the deficit down to 600 billion a year, just that he'd keep it at 1.7 trillion in 2012 dollars, but it would only be worth 600 billion in 2009 dollars

What do you think would happen if China decided to not hold onto all of our debt?

I dont know how the debt is structure to be able to say what they can do about it

in the end, what can they do? stop shipping us underpriced crap? start charging us more for that crap? Unless the debt was created with some sort of guarantee of maximum inflation rates, I can't see what they could do. That is the major assumed risk with that type of security, that inflation will outpace the return. Its not like there was a large risk of the US government declaring bankruptcy

What do you think would happen if China decided to not hold onto all of our debt?

That's mentioned in the movie. Actually they refer back to the Suez crisis and how the US pressured Britain , something similar about some sort of financial ruin they could wreak on the British currency and got them to withdraw.

Edit: Clarification, I was refering to the I.O.U.S.A. movie where the economic pressure is mentioned.

Last edited by Steveoph; 03-14-2009 at 10:38 PM.
Reason: Clarification

See the funny thing is that all I could see china trying to dump the debt doing is increase the inflation / devalue US dollars, which all in all would not be the worst thing that ever happened. If we saw a 100% inflation this year, guess what would happen to the values of all those homes that today are "worth less than the person owes" ? so long as wages dont remain stagnant, it works.

I think that the inflation would be to high for basically anything, and I don't think peoples wages would stay the same. Similar to the Weimar republic, but it could be worse. Like 1 million $ for some lunch, if that amount of dollars is put in the market. But I really don't know too much about the topic, just a tad of info.

sure, but a 7% inflation rate is still within manageable rates as far as raises so pay keeps up goes. The trick is that it devalues existing loans, making them easier to pay. a $1800 a month mortgage doesn't change as inflation goes up, but earnings do (generally)

Its probably the only thing that would really work for us right now, but no federal person can say it without getting huge flack.

here is a chart since 1990

historical inflation rates before this time were higher, as high as over 10% in the 70s.

I was thinking the same thing Easy, about how inflation could ease the housing market, ease consumer debt, and ease government debt all at the same time. JDG however brings up a good point about China. If they dump our debt, the dollar will self destruct and the current economic situation will be like candy.

IMHO inflation and deflation are not as complicated as they're made out to be. Want to inflate the currency? Encourage lending through lower rates and print more money. Want to rein it in? Print less money and raise rates. Its that simple. The price of real goods doesn't change, its the value of the money.

I was thinking the same thing Easy, about how inflation could ease the housing market, ease consumer debt, and ease government debt all at the same time. JDG however brings up a good point about China. If they dump our debt, the dollar will self destruct and the current economic situation will be like candy.

IMHO inflation and deflation are not as complicated as they're made out to be. Want to inflate the currency? Encourage lending through lower rates and print more money. Want to rein it in? Print less money and raise rates. Its that simple. The price of real goods doesn't change, its the value of the money.

What we'd have to do with china is make some sort of under the table deal with them, or make other concessions to them so they turn the other cheek when we do it. It would have to be that way cause although they are the largest debtholder, they still don't have that large of a % of total debt. so we couldnt offer to raise rate of return on theirs without partially defeating the purpose, as everyone else would join in.

So we just need to find something else china wants, negotiate in private them accepting that in exchange for not whining about our inflation hitting 8-10%, and no other single debt holder has that much power over us

What we'd have to do with china is make some sort of under the table deal with them, or make other concessions to them so they turn the other cheek when we do it. It would have to be that way cause although they are the largest debtholder, they still don't have that large of a % of total debt. so we couldnt offer to raise rate of return on theirs without partially defeating the purpose, as everyone else would join in.

So we just need to find something else china wants, negotiate in private them accepting that in exchange for not whining about our inflation hitting 8-10%, and no other single debt holder has that much power over us

that I O U S A movie covers this partially too.

What does China want from us? The money they loan us? They own more than 696 billion dollars in treasuries. The next closest is Japan with 578 billion dollars. All that needs to happen is for them to sell and the rate of interest goes sky high on treasuries while the dollar crashes.

If there is 6-8 percent inflation, they would need to get that rate of return to break even on their money. Otherwise they'd be losing approximately 10 billion dollars a year in real money. Honestly, I think they just dump the currency if our inflation rates get that high.

The best way to try to dupe the Chinese is by Consumer Price Index. Just lie about the numbers. That is the only solution I can think of, and even that may be seen through as hard commodities go up in price against the dollar.

Our gov't lies about the CPI all of the time, they constantly change up products or just use lower prices for the goods to base the CPI all of the time. What I really think needs to happen to save the dollar is to just switch to a gold/silver standard. That would keep inflation/deflation at bay. Thats just what I think, I don't really have to much else. But I know that places where they have a non-fiat currency also do not have to worry about inflation and the such.

Our gov't lies about the CPI all of the time, they constantly change up products or just use lower prices for the goods to base the CPI all of the time. What I really think needs to happen to save the dollar is to just switch to a gold/silver standard. That would keep inflation/deflation at bay. Thats just what I think, I don't really have to much else. But I know that places where they have a non-fiat currency also do not have to worry about inflation and the such.

JDG,

The gold standard is the right answer. Good luck getting something like that through...you're essentially telling gov't that they have to restrain themselves...likely.

The fed buying 300 billion in treasuries is the same as just printing more money. Buy gold and oil. Banks are starting to look good too.

increase your debt, now.

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03-19-2009, 03:55 AM

JDK5386

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Originally Posted by RobInKuwait

Honestly, I think they just dump the currency if our inflation rates get that high.

They can't, unless they want their currency to appreciate and net exports to take a nosedive.

Check out the inflation the fed put out today. My gold mining stock jumped 12.5% in a little over an hour after hearing this.[/url]

The fed buying 300 billion in treasuries is the same as just printing more money. Buy gold and oil. Banks are starting to look good too.

This isn't likely to create an inflation. It may moderate deflationary pressures. If prices and output are falling, increasing the money supply does not necessarily produce an inflation.

That gold and oil are wildly popular in an environment of rising unemployment and lowering inflation is a testament to the power of a thoroughly histrionic media.

sure, but a 7% inflation rate is still within manageable rates as far as raises so pay keeps up goes. The trick is that it devalues existing loans, making them easier to pay. a $1800 a month mortgage doesn't change as inflation goes up, but earnings do (generally)

Its probably the only thing that would really work for us right now, but no federal person can say it without getting huge flack.

Debt is at ~65% of GDP. This is a mid level for a developed economy. It has been as high as 140% of GDP. The majority of the interest is payable at 3-5%. Is it a problem? No doubt. Is it insurmountable? No, higher levels have been paid off with far, far lower levels of disposable income and in a low-inflation environment.

These deflationary cycles have to be disrupted with either fiscal or monetary policy, or we get a Great Depression 2.0. It means large increases in the money supply and large deficits in the short run, but if you don't disrupt these cycles, then you wind up damaging the real economic activity that is at the core of a strong currency and sound tax revenue.

They can't, unless they want their currency to appreciate and net exports to take a nosedive.

Not true. they'd dump our currency for mostly a huge loss as there is noone else out there right now with the capability of absorbing that much debt at one time. so they'd get pennies on the dollar. Their currency conversion vs the US might suffer, but really just from the dollar devaluation.

Originally Posted by JDK5386

Debt is at ~65% of GDP. This is a mid level for a developed economy. It has been as high as 140% of GDP. The majority of the interest is payable at 3-5%. Is it a problem? No doubt. Is it insurmountable? No, higher levels have been paid off with far, far lower levels of disposable income and in a low-inflation environment.

That is wrong. You can't only look at the debt as it stands as a static dollar amount or % of gdp, you have to also consider the long term liabilities of social security, medicare and medicaide. The addition of their liability over the next 30 years makes a far grimmer picture. Also you have to consider that as the size of government grows it becomes a larger % of GDP itself, which since it is not an industry capable of production means lower GDP growth. Also all the other countries that have pulled themselves out of a debt level such as this were manufacturing economies, who had a much lower standard of living than we do now (including us when when last did it)

Originally Posted by JDK5386

These deflationary cycles have to be disrupted with either fiscal or monetary policy, or we get a Great Depression 2.0. It means large increases in the money supply and large deficits in the short run, but if you don't disrupt these cycles, then you wind up damaging the real economic activity that is at the core of a strong currency and sound tax revenue.

I'll agree with the first sentence, we can't allow deflation to continue. I fail to see why it means we need large defecits in the short run. Much of this problem was caused by keeping interest rates too LOW by keeping inflation too LOW. By forcing both to be at a reasonable rate it will all straighten out.

And what real economic activity do we have any more honestly? Our poverty level is still better than most of europe lives (in terms of home size, ownership of "stuff" like cars, etc) so we've priced ourselves out of competition on most of the world stage. The only way we do become competitive again is thru a horrible devaluation in our currency (since we have enough natural resources here in the US to do just fine without imports) or through our working class giving up their nike dreams and working for reasonable rates. $38/hr and free family healthy care for working on an auto assembly line? Give me a break.

They can't, unless they want their currency to appreciate and net exports to take a nosedive.

Think about this.....they're loaning us money and selling us goods. The parasitic trading relationship the US has with China cannot last as it stands. China is retooling their economy to essentially be self sufficient. The second they decouple their currency with the dollar, the Yuan will rise and the Chinese consumer will get a newfound spending power. It is an illusion that the China relies on the US.

This isn't likely to create an inflation. It may moderate deflationary pressures. If prices and output are falling, increasing the money supply does not necessarily produce an inflation.

Deflation is a temporary environment at best with a fiat currency and an interventionist central bank. Doubling the money supply may bring a temporary balance to the credit market, but I'd compare it to filling up a bottle with the faucet on at full blast.....no matter what, you will get spillage.....you can't just turn off the faucet when it fills up. That's how we'll get inflation. Massive inflation. I'm calling 6% by Dec 2009, 10%+ by Dec 2010. What will really suck is if the economy hasn't recovered by then. They'll have to raise rates and stop whatever recovery may have started, or let inflation get even more out of control.

Like I said, buy gold, gold miners, and oil producers.

That gold and oil are wildly popular in an environment of rising unemployment and lowering inflation is a testament to the power of a thoroughly histrionic media.

Nothing of the sort. Gold has been the currency of choice for 5000+years. Oil is what moves the world. They both have objective value. This is not 1930. We don't have a currency that will stay deflated.

Debt is at ~65% of GDP. This is a mid level for a developed economy. It has been as high as 140% of GDP. The majority of the interest is payable at 3-5%. Is it a problem? No doubt. Is it insurmountable? No, higher levels have been paid off with far, far lower levels of disposable income and in a low-inflation environment.

The problem with your assumption is that when we had 140% GDP we were at war, a temporary condition. Today we have expanded permanent government entitlement programs, permanently expanding our debt obligations. This was not a temporary surge in spending, this was a permanent change in the size of government.

These deflationary cycles have to be disrupted with either fiscal or monetary policy, or we get a Great Depression 2.0. It means large increases in the money supply and large deficits in the short run, but if you don't disrupt these cycles, then you wind up damaging the real economic activity that is at the core of a strong currency and sound tax revenue.

Not a Keynes fan. Printing funny money is not a solution out of an economic downturn. The dollar is at a precarious position right now, given that there are many nations want to reject the dollar as the worldwide currency of choice. Devaluing the dollar right now only adds to that sentiment. If the dollar lost its preferential status, America would have to start paying off its loans at the currency the debt was purchased in, which is suicidal in an inflationary environment. This has led to credit defaults in such countries as Argentina, Russia, and Thailand. Currency games is a game of economic Russian roulette. Play at your own risk.

Given time and a solid monetary foundation, the economy will heal on its own, in a healthy manner. With these currency games, we're setting ourselves up for an even bigger bubble than oil, techs, and real estate, that will pop even harder than the previous three. Currency games are the most surefire way to get a second great depression.